Netflix (NASDAQ:NFLX), Google (NASDAQ:GOOG), and others in the technology industry have complained loudly enough about the the Federal Communication Commission's proposed net neutrality rules that the government agency has had to take notice.
Wall Street Journal is reporting that FCC Chairman Tom Wheeler is revising the proposed new rules specifically to address complaints that the proposal will create fast and slow lanes on the Internet. The revised plan would specifically ban broadband providers from blocking or slowing down websites while still allowing them to make deals in which content companies can pay for faster delivery of content to customers.
Wheeler has not given the complaining companies everything they want -- which would be a return to true net neutrality where pay for preferential treatment deals were not necessary -- but he has at least offered to ensure a level playing field. That's not the victory consumers of Netflix specifically had hoped for, but it's at least a sign that the FCC is not completely unaware of the needs of its constituents. More importantly, The Journal reports, the proposed revision would also include the FCC seeking "comment on whether such agreements, called 'paid prioritization,' should be banned outright."
"The new draft clearly reflects the public input the commission has received," an FCC official told the paper. "The draft is explicit that the goal is to find the best approach to ensure the Internet remains open and prevent any practices that threaten it."
So the FCC isn't changing its stand on a proposal that may harm the general public while benefiting giant companies, but it's at least willing to at some point down the line, listen to comments, and a full reversal is possible if enough people speak up.
What the FCC did
While the FCC supposedly represents the public, the board has -- to put it mildly -- been a friend to big business. Its original proposal -- revised net neutrality rules that would allow Internet service providers like Comcast (NASDAQ:CMCSK) and Verizon (NYSE:VZ) to charge content companies for better access to its customers -- seemed like more of the same. The new policy has essentially been in effect since January when a federal court overturned the FCC's rules that maintained net neutrality (the idea that all Internet traffic is treated equally). The original proposal called for ISPs to be allowed to charge for improved access as long as the same deals are available to other companies on "commercially reasonable" terms.
Since commercially reasonable is not a legal term but one open to interpretation, this new proposal is not only bad for established companies, it could be a death warrant for smaller companies. If commercially reasonable is defined as "pay as much as Netflix does" then it becomes awfully hard for smaller players to stay in the game.
In fact it's hard to see how this proposal benefited anyone other than the broadband providers, which would get a new source of revenue in charging companies like Netflix for access to its customers at reasonable speeds. Netflix has already made two of those deals -- one with Comcast and one with Verizon -- and the company's customers will ultimately bear the cost of those deals. They may not pay directly, but the money has to come from somewhere. Whether it comes from a price increase (which Netflix just announced) or from spending less on acquiring and creating content, it's the end user (mostly the public, which the FCC is supposed to represent) who will pay.
The revised proposal does not end the idea that companies will have to pay broadband providers for better speeds for their customers, but it does add some teeth to the concept of the deals being "commercially reasonable." The FCC does appear to be playing a bit fast and loose with semantics as the new proposal bans the idea of fast and slow lanes, but it does not clearly define what the baseline service is. Offering every company regular service and charging more for fast is a lot like when the smallest size a restaurant offers is a medium -- who defines what counts as "regular' or "medium"?
Netflix made this happen
Google and other tech companies and tech advocates have been vocal, but Netflix -- the first company to be forced into paying for better access -- has been screaming from the rooftops. Netflix VP of Content Delivery Ken Florance explained why his company found the fact that it had to make a deal with Comcast distasteful in a recent blog post:
Comcast is not charging Netflix for transit service [carrying data over long distance]. It is charging Netflix for access to its subscribers. Comcast also charges its subscribers for access to Internet content providers like Netflix. In this way, Comcast is double dipping by getting both its subscribers and Internet content providers to pay for access to each other.
Netflix has been very vocal in shining light on the fact that Comcast and other broadband providers who would benefit from these pay-for-speed deals are not doing the heavy lifting on the Internet moving data long distances. Instead they are simply the last step in a long pipeline. But because the customer is at the end of the pipeline the broadband providers hold enormous leverage.
The FCC needs to go further
It's refreshing to see that Wheeler at least vaguely considers the needs of the public important, and his revised proposal along with a willingness to at least consider further changes is a start. To truly represent the public however, Wheeler and the FCC need to enact rules that put the interests of the people first. Those rules may be unpopular with broadband providers and with streaming content companies. It's not the FCC's job to appease Google, Netflix, Comcast, or any other business. The FCC is supposed to protect the public.
Daniel Kline has no position in any stocks mentioned. The Motley Fool recommends Netflix. The Motley Fool owns shares of Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.